Lenders say foreclosure mediation in R.I. has no limits on expense, time

A new report on a federal court plan set up to mediate Rhode Island’s foreclosure crisis shows that $4 million in fees has been paid by people living in their houses while they fight foreclosures, and $903,000 has been spent on expenses for the progr

A new report on a federal court plan set up to mediate Rhode Island’s foreclosure crisis shows that $4 million in fees has been paid by people living in their houses while they fight foreclosures, and $903,000 has been spent on expenses for the program.

The report, filed by special master Merrill Sherman, covers the period since she was appointed in January 2012 to Oct. 15 and says there are still 744 active foreclosure cases pending in the court.

Last week, attorneys for a group of lenders objected to the latest bills for the mediation program — the most recent dispute between the bankers holding the mortgages on the foreclosed property and the court officials trying to resolve the crisis.

The lawyers also objected to the fact that the court has set no time or monetary limits on the mediation process.

“These defendants submit this objection out of their continuing concern for the absence of any temporal and monetary limitations set by this Court with respect to this mediation program since its inception,” said the latter signed by Providence attorneys Maura K. McKelvey and Samuel C. Bodurtha, of Hinshaw & Culbertson, and David J. Pellegrino and Charles A. Lovell, of Partridge Snow & Hahn.

In an Oct. 28 court filing, the four lawyers objected to Sherman’s request for payment of $63,420.92 in expenses for the month of September.

Sherman made her report to U.S. District Court Judge John J. McConnell Jr.

As of Oct. 18, Sherman reported, her office had handled 1,123 cases, including 744 that were active and 379 that have been disposed. So, the program costs have been “just over $800 per case to date,” she noted.

It appears these costs are imposed on the parties via retainer fees. In July, Sherman estimated that projected expenses for the period of July 1 through Sept. 30 would be $262,500, and she recommended the court impose a fee of $110 for each of the 2,370 participating parties.

“We have kept the staff lean deliberately,” Sherman explained in her Oct. 22 memorandum to the court. “… My staff is two lawyers, both of whom are good, and contracted clerical and accounting services as needed. We never knew how long the program would last.”

Sherman reported collecting close to $4.5 million in “use and occupancy payments” from people remaining in their homes while they challenge their foreclosures. Sherman added that $3.8 million of that money was held as of Oct. 15. “Of the more than $660,000 disbursed, approximately $415,000 has gone to plaintiffs [borrowers] (and been used to fund settlements) and approximately $245,000 to defendants [lenders],” she wrote.

Collection of use and occupancy payments effectively stopped on Sept. 1. On Sept. 3, McConnell, in response to an appeals court order, “reluctantly” dissolved an injunction preventing foreclosures and evictions from proceeding in the pending foreclosure cases, and part of the order said the collections would also stop.

In June, the First U.S. Circuit Court of Appeals found that McConnell’s August 2011 order staying foreclosures and evictions in the pending cases was effectively an injunction. Court rules require parties “to show probable success” of prevailing in a case as a condition of continuing injunctive relief.

The lenders’ filing opposing the September expenses also noted that the First Circuit “directed that the underlying jurisdictional challenge to plaintiffs’ standing … ‘should be acted upon no later than the order continuing or lifting the injunction.’” They added that “this has not occurred yet.”